Plus ça change, plus c'est la même chose

An article in the Economic Times today laments that poor rural teledensity is lie to hamper achievement of India's broadband target of 175 million subscribers by 2017. Teledensity in rural India is crawling and is at present 41.64% compared to urban teledensity of 146%.We still have only about 16 million broadband connections. The usual culprits have been blames-poor rural demand and higher costs of rural roll out including non availability of fibre. 

I have recently written about NOFN/BBNL and why it should focus on its core objective of providing           non-discriminatory OFC backhand rather than trying to become a vertically integrated service provider. We already have one such public sector operator in BSNL (which has continuously resisted sharing its fibre with other service providers in spite of regulatory recommendations).

The poor results of USOF's substantial funding to the incumbent BSNL for rural wire lines and broadband are evident. Perhaps there is a need to review the entire strategy of promoting rural telecommunications. Perhaps the solution lies in a more level playing field via regulation (fixing the market efficiency gap) and public funding that encourages private participation. Please also see my previous articles on competition.

NOFN Veering Away from its Core Objective?

In a post titled BBNL and Competition Neutral Broadband Funding I had mentioned the proposal to make India's USF funded rural broadband back haul provider into a service provider.

In an article from the Economic Times it is now learned that BBNL is likely to acquire only an Internet Service Provider license. While this is better than it trying to become a unified service provider it is not what a state funded broadband back haul network is supposed to do. It would become difficult to regulate BBNL's wholesale bandwidth and ensure a level playing field vis-a-vis its own service provider arm. 

As regards the lack of interest among ISPs to venture into rural areas to provide internet, I would not agree with the justification provided in the article. The whole idea of NOFN/BBNL was to eliminate the high speed and bandwidth back haul issue and to allow private and public players to provide last mile access (with this problem taken care off). If the Government was to provide the latter too, the funding may as well have gone to the incumbent BSNL by way of budgetary support instead of creating another PSU monopoly.

A proper study and public consultation process would be in order before assuming a lack of interest  in tapping the rural market among India's multiple  ISP's. (392 as per Department of Telecom's website). There are competition issues here which invariably mean issues realting to long term health of the sector.

BBNL and Competition Neutral Broadband Funding

The Economic Time reports that BBNL(NOFN) which is at present an infrastructure provider may acquire a unified license and become a service provider. This broadband network funded by USOF India was to provide OFC connectivity to 2.5 lakh village panchayats (local self government offices) up to block level as private operators were not likely to cater to this market segment.

It is reported that,

"The government is looking to "revise BBNL's mandate" as it wants it to directly deliver high-speed broadband services down to the district level to maximise utilisation of NOFN infrastructure, which is the communications ministry's biggest telecom venture.

The immediate plan is use the NOFN resources to build a "government-user overlay network" — akin to a virtual private network — for delivering a host of citizen-centric e-services to bridge the digital divide across rural India.

The DoT has proposed joint funding of the "proposed overlay network" by the Universal Services Obligation Fund (USOF) and the ministry of rural development. It wants USOF to handle the entire upfront capex payout — pegged at Rs 3,750 crore — and the rural development ministry to handle opex over a 10-year span - estimated at about .`1,860 crore a year - putting the total cost at Rs crore, excluding taxes."

In my previous posts on National Broadband Plans and incumbent centric, public funded Broadband Networks I have highlighted the importance of competition and avoidance of market distortions or recreation of monopolies. I believe that if BBNL were to complete roll out and the government was to focus on            e-government services (applications), a host of private and public sector telecom service providers would step in to provide last mile connectivity for broadband enabled services on commercial considerations.

In fact it has recently been reported that India has croseed the billion mark as far as e governance transactions go. Also that, "[w]ith more parts of the country getting connected through the National Optic Fibre Network, industry watchers expect more citizens to be accessing government services over the internet. ... The network has been launched in pockets of Rajasthan, Andhra Pradesh and Tripura, with some 80,500 transactions already recorded."

National Broadband Plans-The Largely Un-examined Competition Debate

I recently came across a very interesting post on the subject of competition in OFC roll outs. This well written post by Paul Budde argues that (in the Australian context but extrapolating through examples to the international context) either we do not really need infrastructure competition in OFC infrastructure or at least it is not a very practical possibility. He cites USA and Europe as examples of lack of nation-wide fixed line competition.

It would take much more than a blog post to analyse his arguments but I would like to make one simple counter argument. Why must we have a nation wide network? In vast countries like India, USA and Australia even regional or sub regional fixed networks would be a feasible option. In non viable areas, competitive service provision may be seeded by Universal service funding. Please see my post on the Indian USOF model at Broadband Networks through the Infrastructure Sharing Route. This model did succeed in creating potential competition to the incumbent with USOF subsidy even in a remote region of the country. Other posts on infrastructure sharing could also be viewed. 

Perhaps the inability to fathom such a model comes from historical reasons wherein in almost every country the incumbent managed to protect its monopoly by harping on the economies of scale issue and the best option with the state was to regulate prices etc. Regulating monopolies cannot solve inefficiency and lack of drive to innovate that plagues all monopoly service provision. Readers are invited to read my previous posts on NBN and NOFN. Today both networks are delayed and mired in roll out problems. There is a news item about NOFN planning to impose heavy penalties on its vendors who are delaying roll out. Need I say more. I have written earlier cautioning against the faddish nature of national broadband plans and the fact that they are likely to recreate monopolies with the usual set of associated problems.

Also, unlike Mr Budde, I am not so sure that mobile networks can ever be considered perfect substitutes for fixed lines. European regulators seem to agree with me.  

I do agree that service level competition is very critical, but as far as competition in broadband goes, if it is there at every level-all the better. 

The Demand Side of Broadband Expansion-Telemedicine

As per the telecom live magazine (August issue) the Department of Telecommunications is collaborating with other ministries/ departments to establish the utility of the NOFN. This includes the Ministry of Health & Family Welfare which has reportedly stated in an inter ministerial meeting held in June 2013 that fibre connectivity and computers are critical for telemedicine applications. There is no doubt about that but a proper and detailed assessment of needs and gaps would be critical for BBNL to usefully boost telemedicine in rural India in a systematic manner.

We could learn something from USA 's experience. It has for the past 15 years run a programe to subsiise connectivity fo rural healthcare. 

As per an article titled, "FCC Rural Health Care Program coming up woefully short" in November 2010 a Government audit  said that the FCC "has not conducted an assessment of the telecommunications needs of rural healthcare providers as it has managed the primary Rural Health Care Program, which limits FCC's ability to determine how well the program has addressed those needs." In addition, government auditors found that the FCC has not developed specific performance goals for the Rural Health Care Program and has developed "ineffective" performance measures." 

However another article, "$400 million FCC fund to bolster rural telemedicine networks," describes the Federal Communications Commission plan to expand on the above-mentioned programme to " make up to $400 million available to healthcare providers in order to create and expand telemedicine networks nationwide, linking urban medical centers to rural clinics while providing greater access to medical specialists and instant access to electronic health records. "

It is said that, 

"According to the FCC, the Healthcare Connect Fund could cut the cost of broadband healthcare networks in half, through group purchases by consortia and other efficiencies. The fund will provide a 65 percent discount on broadband services, equipment and connections to research and education networks, and healthcare provider-constructed and owned facilities (if shown to be the most cost-effective connectivity option), while requiring a 35 percent HCP contribution.To be eligible for the funding, applicants must be public or not-for-profit hospitals, rural health clinics, community health centers, health centers serving migrants, community mental health centers, local health departments or agencies, post-secondary educational institutions/teaching hospitals/medical schools, or a consortia of the above."

USOF India needs to learn from successes and pitfalls of such initiatives while coming out with specific programmes to address demand side of the broadband ecosystem.

Bhutan's Broadband Network

RaiTel which is a telecom company parented to the Indian railways is to set up Bhutan's Broadband Network. This network will connect all government institutes,  universities and other important institutes.  An agreement has been signed io this effect with the Ministry of Information and Communications of Bhurtan. The project is to be completed within six to eight months. Railtel is also involved in USOF projects including OFC for N.E states and NOFN.

The Potential Blessings of High Capacity Broadband

An article on Australia's NBN denial of preferential access to any agency highlights how useful a high capacity FTTH connection can be for especially vulnerable segments of the population like ill, disabled or elderly people living alone. Health care providers could use such connectivity to deliver services and monitor their health and well being. The application service provider could either approach NBN directly for connectivity for this purpose or through one of its client access service providers. The end customers would only be dealing with the application (health) service providers.

The article highlights that NBN shall not give any preferential treatment "to government agencies or health organisations wanting to use the national broadband network to provide services directly to Australian citizens."

India's National Optic Fibre Network which is to connect 250000 village panchayats and is being implemented by an SPV named BBNL has announced that it will  offer free bandwidth free  to the Telecom Service Providers  from Block headquarter to Gram Panchayat  for connecting one BTS for two months from June 2013. This may be to encourage rural penetration and wean TSPs off microwave based back haul which is quite prevalent in the absence of fibre back haul.

India's Broadband Initiative-Bharat Broadband Network Ltd

I have mentioned earlier that 2.5 lakh village panchayats (local government centres) are to be connected through the National Optic Fibre Network or the public sector SPV called Bharat Broadband Network Ltd. This roll out would take high speed broadband  to rural India and hopefully revolutionize rural telecommunications.  A rare update on BBNL appeared recently in Business Line. It reported inter alia that 

"A survey – to chart an optimum route [for OFC] - for all 2.5 lakh GPs in the country is underway. The National Information Centre has been roped in to create a digital map, with routes and nodes, using Geographic Information Systems technology. It would be hosted on BBNL Web site for the citizens to review it and provide feedback."

and that,

"Tenders for laying the network had been floated and financial bids were opened on June 7, however unsuccessful bidders have approached court and their bids were opened on June 21. Due to this delay, the tender would be finalised by July 31."

This is often a problem with PSU tenders and not limited to India. Expenditure so far has been Rs 229 crore or USD 38.346 Million.

It is hoped that these teething problems are soon overcome and the roll out is achieved on time. It is also hoped that  the resultant network is effectively regulated to ensure open access and a level playing field between participating Public Sector Units (PSUs) and various private entities involved in the broadband eco-system. Needless to say these supply side initiatives must be accompanied by measures to address other aspects of the rural broadband value chain.

The Broadband Ecosystem

I reproduce below a news item about the release of an ITU report, "Planning for Progress: Why National Broadband Plans Matter."

• Countries with a clearly-defined national vision for broadband roll-out are significantly out-performing those with a more relaxed approach, according to a new report by the International Telecommunications Union.

• The report observes that there were 134  national broadband plans in place around the world by the middle of 2013, all of which aim to increase usage of broadband-enabled services and applications by citizens and businesses.

• Such plans are found to have a big impact on market penetration of fixed and mobile broadband services, with average penetration around 8% higher for both in those countries with a formalised plan.

• Market competition is also believed to play an important role here, with competitive markets averaging 1% higher penetration for fixed broadband and 26% higher for mobile broadband than those markets with a monopoly.

• Dr Hamadoun I. Toure, secretary-general of the ITU, said: “Governments are realising that broadband networks are not just vital to national competitiveness, but to the delivery of education, healthcare, public utilities like energy and water, environmental management, and a whole host of government services. Broadband is the key enabler not just of human interaction, but of the machine-to-machine communications systems that will underpin tomorrow’s world.”

• The study concludes by stating that the full economic and social benefits are most likely to be realised where there is strong partnership between government and industry, and counsels a consultative, participatory approach to policy in conjunction with key stakeholders.

Source: http://www.iptv-news.com/2013/07/national-broadband-plans-crucial-to-success-says-itu/

The report indicates regional differences different policy in  instruments being used to promote broadband

Most importantly the report highlights the need to focus on the entire broadband ecosystem rather than just the supply side. At present relatively few countries focus on the entire gamut of measures needed for true broadband related inclusion.

It  cites the case of Brazil, as a well formulated plan based on widespread consultation which takes into account the infrastructure provision targets, a conducive regulatory environment combining infrastructure sharing and competition, as well as fiscal incentives.

The results as reported are heartening,

The private sector has responded by accelerating the deployment of infrastructure. There has been significant uptake in both fixed and mobile broadband services – fixed broadband is now available in all 5,565 municipalities of the 27 states in Brazil. Since 2009, total fixed broadband subscriptions have doubled from 10 million to 20 million lines in service.  Mobile 3G services now reach 3,376 municipalities in all states, currently covering 89% of the country´s population. Mobile broadband has exploded from 7 million lines in service in 2009 to 70 million today. Mobile 4G services were recently launched in April 2013 in major State capitals, with extensive coverage targets over the next few years.  Twelve thousand community telecentres have now been equipped and provided with broadband Internet access. 

In India apart from the National Optic Fibre Network-A USF supported project, a clear broadband policy articulation is found in the National Telecom policy 2012.  Please see previous posts on National Broadband Networks and Universal Service more information.

Broadband Networks through the Infrastructure Sharing Route

I had mentioned earlier that we should perhaps be concerned about the current trend of state funding for broadband roll outs. It is often presumed that private sector will not roll out high capacity Optic Fibre Cable (OFC) networks at the speed or with the spread required for desired levels of broadband penetration.

It is true that private sector may need various incentives or even subsidies to venture into less lucrative markets or uneconomical areas. However, in my view, a variety of measures can be taken  that still fall short of state funding or state ownership.

The Universal Service Fund of India (USOF) had initiated two excellent schemes for the remote and relatively backward North Eastern states of Assam,  Meghalaya, Mizoram,  Tripura (N.E I Telecom Circle) and Nagaland, Manipur Arunachal Pradesh (N.E II Telecom Circle) that involve high capacity OFC backbone networks being laid out in rural areas (from district to block level) through Output Based Aid projects. These were bid out (reverse bidding) after a painstaking bench-marking exercise to arrive at the upper limit of subsidy, keeping in view possibility of renting out existing OFC from incumbent operators, apart from laying fresh cable. The resultant network is to be shared by the lowest bidder i.e. designated Universal Service Provider or Host Operator  on non-discriminatory, open access basis with other service providers. The tariff  offered by the USP has to be at a specified rate of discount vis-a-vis the Telecom Regulatory Authority's  (TRAI's) ceiling rates for leasing OFC. Discounts were worked out keeping in view capital cost subsidies, revenue projections and operating cost requirements. The bid for the states of Assam was won by the incumbent fixed line operator BSNL. However interestingly for the N.E states Railtel won the bid even without BSNL's  advantage of ownership of majority of OFC networks. There is a strong possibility that it has relied on back-end agreements for renting OFC from private operators rather than laying fresh cable to achieve its obligations in a cost effective manner. This is permitted by the USOF tender. 

The above Private Public Partnership model could have been successfully replicated for block to village level roll outs too. Given that OFC as a technology/broadband platform is here to stay, adeqaute subsidies on reverse bidding basis could have attracted private capital in many (if not all) bidding units (states/telecom circles). This model was rejected during decision making on the National Optic Fibre Network (NOFN) on the debatable grounds that bench-marking takes too long. Personal experience with the above mentioned schemes tells me that this is not correct and that the benefits of involving a large number of market players in laying of the nation's OFC backhaul far outweigh the effort involved in tendering individual bidding units.  I have mentioned earlier relying on public ownership or funding the incumbent is perhaps more attractive in the short run in terms of  relatively less time and effort required to commence roll outs. However the long term impact of monopoly ownership of even open access networks (on competition and accompanying aspects such as innovation/customer service/technological neutrality) and regulatory burden involved in ensuring open access on continuing basis, merit consideration.

It is interesting to note that Indian telecommunications players are looking at voluntary sharing of OFC networks and setting up joint ventures to invest and manage shared networks as the way forward. This may be happening only in cities and towns at present, but it is a moot point whether this trend would not have been replicated eventually in rural areas if the PPP approach to network roll out had been followed.

As of now 2.5 lakh village panchayats (local government centres) are to be connected through NOFN or the public sector SPV called Bharat Broadband Network Ltd. This roll out would take high speed broadband  to rural India and hopefully revolutionize rural telecommunications. It is hoped that the roll out is achieved on time and  that the resultant network is effectively regulated to ensure open access and a level playing field between participating Public Sector Units (PSUs) and various private entities involved in the broadband eco system. needless to say these supply side initiatives must be accompanied by measures to address other aspects of the rural broadband value chain.   

Another important, not entirely unrelated development is the forthcoming creation of a Telecom Finance Corporation to provide capital to telecom operators in India at internationally competitive rates. This should give a fillip to network and service expansion and will hopefully be used to fund not only infrastructure but also content and capacity building  related projects.